Q1 2023 Bandwidth Inc Earnings Call
Speaker 3: Good day.
Speaker 4: And welcome to the bandwidth-ank first quarter 2023 earnings conference call.
Speaker 5: While participants will be in a listen only mode for the duration of the call. And should you need any assistance during that time, please signify conference specialist by pressing the star key followed by zero.
Speaker 6: After today's presentation, there will be an opportunity to ask questions.
Speaker 7: To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two.
Speaker 8: Please also note that this event is being recorded today.
Speaker 9: I would now like to turn the conference over to Sarah Wallace, Vice President of Investor Relations. Please go ahead.
Speaker 10: Thank you. Good afternoon and welcome to bandwidth's first quarter 2023 earnings call. Today we'll discuss the results announced in our press release issued after the market closed.
Speaker 11: The press release and an earnings presentation with historical financial highlights can be found on the Investor Relations page at investors.bandwidth.com.
Speaker 12: With me on the call this afternoon is David Morgan, our CEO and Darrell Raferd, our CFO . They will begin with prepared remarks and then we will open up the call for Q&A.
Speaker 13: During the call, we will make statements related to our business that may be considered forward-looking, including statements concerning our financial guidance for the second quarter and full year of 2023. We caution you not to put undue reliance on these forward-looking statements.
Speaker 14: as they may involve risks and uncertainties that may cause actual results to vary materially, from any future results or outcomes expressed or implied by the forward-looking statements. Any forward-looking statements made on this call and in the presentation slides reflect our analysis as of today.
Speaker 15: and we have no plans or obligation to update them. For a discussion of material risks and other important factors that could affect our actual results, please refer to those contained in our latest 10K filing as updated by other SEC you will receive office requests from our valuable court and of License?
Speaker 16: for joining us. 2023 is off to a good start. We are making solid progress adding direct to enterprise customers, developing innovative award-winning products, and advancing our strategic initiatives while focusing on profitability. During the first quarter of the year,
Speaker 17: We exceeded our revenue guidance and are on target to meet our goal of growing profitability by 30% this year. I want to thank our customers for continuing to trust us with their mission-critical communications. Thank you as well to all our bandmates around the world for supporting our customers and each other in selfless dedication to our mission. And I thank God for blessing us with a 24th year of extraordinary-
Speaker 18: We won several global 2000 financial services leaders that chose bandwidth as the voice provider for their contact centers during the quarter. Notably, each one deployed a different CCAS platform while choosing our bandwidth communications cloud to power their communications stack.
Speaker 19: This shows how we're leveraging our strong relationships with all the Gartner leaders in cloud contact centers and the breadth and depth of our expansion in the enterprise contact center space.
Speaker 20: Among existing customers, we expanded our long-term relationship with the largest issuer of Visa and Mastercards in the United States. Using the bandwidth communications cloud, we helped this customer scale up its contact center capacity due to a recent acquisition. Additionally, this customer needed new international coverage to connect with employees in the Asia Pacific region.
Speaker 21: Because we seamlessly connected this customer across global geographies, we were awarded this new business.
Speaker 22: As these examples show, we're seeing measurable results by directly serving enterprise customers. We've grown over tenfold the number of enterprise contact centers utilizing the bandwidth communications cloud just in the last three years. Our significant expertise across numerous industry verticals comes from providing scalability, redundancy across yet another side thanks to the CIO and Lichten fest design for themes
Speaker 23: pre-integrated conversational AI and native fraud scoring technology and is driving the largest enterprises to come directly to bandwidth to help build their cloud contact centers.
Speaker 24: Successful enterprise communications strategy is dynamic and our strong culture of innovation keeps us ahead of and shapes the curve. For example, we integrated AI into our communications cloud over a year ago. That's because we've prioritized R&D from our very earliest days. For the last 24 years in fact, innovation has been the foundation for all our growth and profitability.
Speaker 25: Bandwidth My Stro is the latest example, born from our close connection with Enterprise CIOs, who now must connect their entire organizations to create better customer experiences while streamlining operations.
Speaker 26: Myestro integrates the best in class platforms and capabilities that CIOs need across UCAS, CCAS and AI. It's truly a next-generation capability and customer experience, and it saves months of integration work. So enterprises can achieve faster time to revenue.
Speaker 27: We believe the value proposition and ROI of myestro is unique in the CPAS space. With full availability slated for later this year, the early market reaction to myestro has been encouraging. In recognition of its excellence in technology advancement, innovation and business impact, myestro won best of show at Enterprise Connect. This is a substantial achievement and it is already proving to energize conversations with both existing customers and prospects.
Speaker 28: Mistro joins other award-level innovations we've launched recently, like our native text messaging app for Microsoft Teams called Send2, which recently won the Internet Telephony Product of the Year Award, and our backup solution for toll-free calling named Call Assure, which was a finalist in the prestigious CX Awards this past quarter.
Speaker 29: These are just a few examples of how our innovation engine and breadth of solutions are shaping the future of cloud communications for both new and existing enterprise customers.
Speaker 30: We're still in the early stage of a long-term secular trend of digital transformation that's becoming more and more dynamic by the day, with emerging AI technologies converging platforms and exciting new use cases.
Speaker 31: We're focused on maximizing our direct-to-enterprise momentum, capitalizing on new innovations like myestro, increasing product penetration across all three customer categories, and exploiting the competitive advantage of being the only CPS provider with our own global network, all while serving our customers and executing with discipline to grow
Speaker 32: Both results position as well to deliver our full year outlook.
Revenue compared with last year benefited from monthly recurring charges for phone numbers and emergency services.
which combined were up 6% year over year.
and higher messaging revenue up 8%, and representing 15% to total revenue excluding surcharges.
retail and e-commerce shopping, send tech, and civic engagement. On a sequential basis, excluding surcharges, overall first quarter messaging was lower than in 4Q22, as we had expected, but adjusting for the positive effects of political campaign messaging recognized in last fourth quarter, we achieved sequential growth of 16% in our commercial messaging from higher demand in those same verticals.
as these two customer categories grew 8% and 27%, respectively, year over year. Programmable services continue to strengthen from a secular movement to messaging engagement. And although the direct to enterprise category is a small base of revenue for us today, the undeniable market dynamics, customer wins David highlighted, and strong pipeline give us confidence this market will be a key driver in achieving our long-term financial targets.
Rounding out our first quarter results, non-GAAP gross margin was 54%.
Up one percentage point from the prior year's quarter. We continue to benefit from economies of scale.
up one percentage point from the prior year's quarter. We continue to benefit from economies of scale, a rich mix of higher margin products.
global coverage and operating improvements.
In terms of our operating metrics, our first quarter net dollar retention rate was 109%.
For customers greater.
Then $100,000 and your revenue.
2 percentage points higher than the total customer metric and clearly demonstrating the benefits from focusing on large customers and direct to enterprise opportunities. Active customer count was 3361, although the customer count metric has diminished in relevance over time as we focus on larger and more profitable customers. Average annual revenue per customer which continued to rise reached $172,000 in the first quarter. Another demonstrable result from larger customer opportunities.
resulting in a reduction of $65 million of convertible debt for approximately $51 million cash or an approximate 22% discount to par value. This latest opportunistic repurchase combined with the $160 million repurchased in November 22 lowered the outstanding 2026 notes by $225 million or 55% of the original principal balance utilizing only $168 million of cash.
We continuously evaluate our options for the best use of our balance sheet to stay opportunistic in the current capital market environment. With our Resilent Focus on Profitable Growth, we create the option to fully repay our remaining convertible note obligations in full upon their respective maturities with our earnings and available cash if that is the choice we wish to make. We enter the quarter with a cash and securities balance of $124 million, a more than sufficient amount to meet our business needs and sustain a great deal of financial flexibility.
Turning to our outlook, we are on track to achieving our full year guidance provided at the start of the year of $576 million to $584 million in revenue and $43 million to $47 million suggested EBITDA.
Our outlook for the full year is unchanged despite a challenging macro environment.
for the full year is unchanged despite a challenging macro environment. In summary...
Our financial and operating performance in the first quarter represents a solid start to the year.
We'll continue to focus on what we can control, serving and delighting our customers every day.
We'll continue to focus on what we can control, serving and delighting our customers every day, growing our margin.
being disciplined with our costs and becoming more profitable. Now I'll turn the call back over to the Operator for questions.
And to withdraw your question, please press star, then two. At this time, we will pause this momentarily to assemble our roster. And our first question here will come from Mike Walkley with Canacorgenuity. Please go ahead with your question. Great. Thank you, Mike. Nice to see the solid start to the year and the updated guidance. I guess David, for you, just a question on maybe the linearity of the quarter and just post Silicon Valley bank and some of the macro issues. Have you seen me think slowing in the March, April timeframe or business really trending as you expected?
reflects both macro and things that we do see internally. Nothing to call out in particular that would further answer your question on conditions but again executing the plan that we set for ourselves for the year. Really delighted that we've started off the year with the performance in the first quarter as expected and believe that we will continue to execute throughout the remainder of this year toward the objectives that we've defined for ourselves.
and reflects both macro and things that we do see internally. Nothing to call out in particular that would further answer your question on conditions, but again, executing the plan that we set for ourselves for the year really delighted that we've started off the year with the performance in the first quarter as expected and believed that we will continue to execute throughout the remainder of this year toward the objectives that we've defined for ourselves. Thanks, and just for my follow-up question.
You know, Daryl, good job, you know, paying down the debt. It certainly seems like you guys had the balance sheet in a good position now, given your profitable growth history. Just in terms of the Q2 guidance on the slightly higher revenue, but similar adjusted EBITDA, is there any kind of change in mix or gross margins, or you kind of just expect a Q2 similar to Q1? Thank you.
We're expecting Q2 on the revenue line to grow just modestly over Q1. We're also expecting our EBDA to be, as we've got it, $5 million. We believe that we have some real operating flexibility there. Clearly the macroeconomic conditions that we even witnessed today would give some
Some in the market pause, we're pretty happy that we have de-risked our guide for the second quarter and comfortable with it.
Thanks for my take my questions. I'll pass the line.
In our next question we'll come from Meta Marshall with Morgan Stanley . Please go ahead with your questions.
where your coverage and impact was kind of noted. I guess I just wanted to get a sense of, do you feel like you have all of the regions that you need at this point? Are there still regions kind of as you do expand your global footprint that are more meaningful that we should kind of consider you expanding into? And then.
Starting your first question related to geographies and markets that we open, we celebrated opening Turkey and did so really behind a strong business case for an existing customer. And that's the way we've historically built, instead of trying to build it and they will come, we follow demand. And so we've got a very...
good relationship with some of our most aggressive international customers who identify for us markets that are favorable for lots of different user experiences and will invest in build in those geographies responsibly. Sometimes we'll begin by partnering, but then our unique value proposition that you've followed for a while, while MEDA is to have an owned and operated network beneath our...
our software platform and will continue to execute against that strategy globally following our customers around the world. In regard to Maestro, so excited that the product has been received the way that it has winning the best of show at Enterprise Connect. The team continues to have very encouraging and exciting conversations with Enterprise customers about the product.
we believe that it will continue to pick up steam and momentum throughout the rest of this year but your question the essence of which is when will the revenue arrive for MAESTRO? We think that it is going to be exciting to see throughout 24 and beyond as we head toward our long-term growth targets for direct interproduct
revenue, but it is the leading car on this train that we're on toward the future with direct enterprise.
Great, thanks.
In our next question, we'll come from James Fish with Piper Sandler. Please go ahead with your question. Hey guys, thanks for the questions. David, in your preferred remarks, I think it was you. You noted some softness with the UCAS side of the business.
I guess can you elaborate on that in terms of what you guys are seeing and also what you're seeing with also your largest customers in that part of the market as well as on the Contact Center side where it sounds like things are going pretty well.
Yes, I'll start in reverse. The CCAS momentum with the direct enterprise wins has been fantastic and as expected. Lots of high interest in bring your own carrier model for consuming CCAS. Every single deal win that we highlighted on this call was related to contact centers in the enterprise and bringing your own carrier, so that's exciting.
We think regarding UCAS that it's purely a function of the macro and fewer seeds that may result from the macro. Useage patterns.
And so we think that return to the office is not the primary factor. And again, I think it's most important to recognize that within the overall guide and results, the physicians in UCAS haven't changed either our expectation or our results for the quarter. So it's something that we've easily accounted for in the period and don't think that it takes us off track at all for the remainder of the year.
That's helpful. And then on the customer count, I know you guys are focused in on larger and higher quality customers, but there was another quarter where it was down sequentially again, and somebody's got to ask it here. How much of this was continued rationalization?
versus, I think in the past year you've given what the gross additions were this quarter. Can you help us kind of bridge the rationalization versus kind of gross additions or is this kind of a clean customer count to think of going forward?
It is continuing rationalization as we architect the turn of small, unprofitable customers. Those customers on average are $2,000 a month. Customers compare that to the average RPU that we have, I'm sorry, $2,000 a year, not month, excuse me. Our average customer is $172,000 a year. So again, the customer count is not as germane.
to yield a forward projection on revenues. And that's just continuing, as your question stated, what we've been doing for a while now, which is focus on profitable growth from larger enterprise customers. We actually have average customer revenue this quarter increasing, as I said, 172K, that's up from 158K a year ago. So that
guys. In our next question, we'll come from Ryan Coons with Needleman Company. Please go ahead with your question.
Thanks for the question. Nice progress on the messaging front. Really good to see that business motoring along. On the voice side, you mentioned softening a new cast and strength of Ccast, which is familiar tone. I wonder if you can comment on the pricing environment in general for either of those segments.
How we should think about that impact relative to kind of the seat counts and usage within those two segments. Thanks. Hey Ryan, this is Darrell. Pricing had a favorable impact in the first quarter. It was driven by a richer mix of higher price products like messaging and phone numbers. When we look at pricing and volume pricing did increase.
again, as it has been for many quarters. It wasn't necessarily a skew-by-skew price increase, but we have enjoyed improved aggregate pricing.
That's helpful there. Thanks. That's all I had. Thanks. As a reminder, if you have a question, you may press star or the 1 to join the queue.
Our next question here will come from Patrick Walravens with J&P Securities. Please go ahead with your question.
Oh, great. Thank you. Hey, so David, let's talk about chat GPT a little bit here. So, you know, all these studies of the jobs are going to be eliminated like the top list of the customer service reps.
So what is that going to do for the total number of seats out there in call centers? And how will that impact you guys? You don't really charge per seat, right? You're more consumption based? That's exactly right, Pat. We're usage based. Because that's the same number.
I don't, I, while I can't predict the future, what I do anticipate are the incredible teams that we work with in the CCAS space understand how to adapt and overcome and actually utilize some of the most powerful developing AI tools that are out there and so their business models may change but the value that they add within the contact center environment I expect to continue. Precisely how I think is unclear which is why your question is a very good one but the teams that are at the forefront of the contact center digital transformation are all over this. Okay and one more just I think as a reminder.
myself and everyone else. So I mean 5% growth this quarter down from 24 next year but there's this bizarre dynamic about elections right.
How do you guys feel about next year in terms of what growth you can do and how has that changed? We firmly believe that the long-term trajectory that we put out on our investor day is well within reach. Having finished one quarter since we talked about that and we're on track and on plan.
and reiterating our guidance for the rest of this year, everything about executing in the last 90 days supports the longer term thesis that we socialized on investor day.
and reiterating our guidance for the rest of this year. Everything about executing in the last 90 days supports the longer term thesis that we socialized on investor day. Okay, thank you.
This concludes our question and answer session and also concludes the call. Thank you very much for attending today's presentation. You may now disconnect your lines.